Critics of the cash transfers project are all barking up the wrong tree

Cash transfers enjoy two major advantages over in-kind transfers. First, they empower the beneficiary instead of placing her at the mercy of the provider, as is the case under in-kind transfers.

Second, they foster efficiency by reducing corruption and leaks in the long distribution chains under inkind transfers. Nevertheless, critics like Lant Pritchett and Shrayana Bhattacharya have alleged that they are not a 'cure-all ' solution.

Surely, the proponents understand that cash transfers are only one instrument among many to combat poverty. Indeed, if Pritchett and Bhattacharya have a cure-all solution, I will be the first to give up cash transfers in its favour.

They also argue that in-kind transfers are better because they nudge the beneficiary towards the consumption basket the government considers healthy. This is a false claim.

Just because the transfer is affected in rice does not mean that the beneficiary will consume more rice. If she prefers ice-cream, instead, he will simply sell part of the rice for cash and use the cash to buy ice-cream. India's poor may lack money but they have the brains to figure out that the market allows two-way conversion: cash into kind and kind into cash.

They bolster their claim by citing an obscure experimental study from Honduras in which in-kind transfers led to increased calorie consumption while cash transfers did not.

They neglect the fact that the existence of a massive food-distribution programme for decades in India has not prevented a steady decline in calorie consumption across all income classes. Perhaps the Honduras experiment was not run long enough for the beneficiaries to discover the conversion possibilities that the market offers.

The idea that in-kind transfers can transfer purchasing power while additionally imposing a specific consumption basket on the beneficiary thereby killing two birds with one stone is an enticing one. But, alas, you can get such a kill only in the rare case when the shooter and the two birds are aligned along a straight line and the shooter also has a strong arm and a good aim. In most cases, you need two or more stones to kill two birds.

Public policy is no different. Regardless of whether the government transfers purchasing power in cash or kind, it must additionally run an effective campaign to inform the target population of what constitutes a healthy basket of goods and why it is good for them.

As India's own experience testifies, distribution of heavily subsidised rice and wheat will not guarantee even increased calorie consumption, let alone a balanced diet.

Pritchett and Bhattacharya also contend that whereas the poor can self-identify under in-kind transfers, cash transfers lack this attribute. But this is a hugely exaggerated claim since self-identification under in-kind transfers is only possible if the transfers consist off rotten food or lowquality education and health services for which only the poor might line up.Â Related, did the proponents of National Rural Employment Guarantee Scheme (NREGS) not tell us that it would lead to self-identification of the poor? Well, with three years worth of nationwide operation of the scheme, the government must now know every single poor household in every single village . Why is then the identification of the poor an issue any more unless the claims of self-identification were false in the first place? If the latter, let us not keep repeating the claim that in-kind transfers magically separate the poor from the non-poor.

Separately, Yogi Aggarwal attacks cash transfers on the ground that they will expand the space occupied by the private sector while also undermining public programmes for food distribution, health and education.

He doesn't confront the question whether the objective behind redistribution is to help the poor or protect public distribution programmes regardless of the service they provide to the poor.

Why, despite the elaborate system of sub-centers, public health centers and community health centers, painstakingly built over five decades, 75% of the outpatient care and 55% of inpatient care takes place in the private sector in both rural and urban areas ? Why is it that even families at the bottom of the socio-economic ladder work multiple shifts so that they may scrape enough financial resources to send their children to private schools?

And why do so many poor citizens find it demeaning to stand in the queue every month at the ration shop and beg the shopkeeper for the grain that is rightfully theirs in the first place? Purely on statistical grounds, it is a safe bet that even the Aggarwal family has stayed clear of public schools, government hospital and ration shops.

Finally, we have the criticism that cash transfers are infeasible because not everyone has a bank account. Having grown up in 1960s' India, I do not recall there being a single ration card before the public distribution system was invented. Aadhaar offers a more promising starting point.

It is ironic that after 50 years of failure we are still optimistic for in-kind transfers but won't give cash transfers even five years to build the necessary infrastructure.